Commissioner of Income Tax and Another vs Parag Kotecha

V.G. Sabhahit, J.—This appeal is filed being aggrieved by the order passed by the Tribunal, Bangalore Bench B in ITA No. 31/Panj/2002 (block period 1988-99 to 1998-99) dt. 2nd May, 2005 wherein the Tribunal has dismissed the appeal filed by the Revenue and partly allowed the cross-objection filed by the assessee. The material facts leading upto this appeal are as follows:

The respondent is an individual assessee and is a supari merchant. He is a wholesale supari merchant and has started his business in May, 1993 and has been filing the returns for the assessment year 1993-94. On the basis of the information in the possession of the Department and since there was reason to believe that assessee is in possession of money, assets, properties which represent either wholly or partly income which has not been disclosed for the purpose of IT Act, 1961 (hereinafter called the Act), a search was conducted under s. 132 of the Act on 28th Jan., 1998. Thereafter assessment proceedings were initiated under Chapter XIV-B and notice was issued under s. 158BC of the Act on 17th Aug., 1998. The assessee declared the undisclosed income of Rs. 2,00,000 (Rs. 47,740 for assessment year 1997-98, Rs. 1,52,270 for assessment year 1998-99) representing the unaccounted income from the business. Thereafter, notices under ss. 142(1) and 143(2) of the Act were issued and on hearing the assessee, AO passed an order holding that the assessee was having four benami accounts as described in the assessment order in the name of M/s. Anil Kumar & Co. and M/s. Pramod Traders in UCO Bank, Mangalore and M/s. Anil Kumar & Co. and M/s. Sangam Traders in Indian Bank. Mangalore and found the following details:

During enquiry AO found that account Nos. Nil Sangam Traders in Indian Bank and Pramod Traders in UCO Bank at sl. Nos. 1 and 4 were benami accounts and though notices were issued to the persons in whose name accounts were opened, there was no such address and a person who has introduced did not specifically state that he has introduced the assessee and accordingly computed the income of the assessee as under:

The total income of the assessee is computed as under-

Thereafter, passed the order after adding interest and deducting the amount paid and held that the balance payable is Rs. 10,46,538. He has also made office note to the following effect:

Office Note

The benefit of peak credit, which is generally accepted as it is logical and acceptable, is given to the assessee in the individual bank accounts while working out undisclosed income.

However, a refinement or extension, while peaking occurs where the credits appear not in the same account but in the accounts of different persons. Even then, if the genuineness of all the persons is disbelieved and all the credits appearing as the different accounts are held to be the assessees own moneys, the assessee will be entitled to a set off and a determination of the peak credit after arranging all the entitled to a set off and a determination of the peak credit after arranging all the credits in chronological order. The assessee may take up the above plea in the appellate stage.

These propositions cannot, however be treated as propositions of law. They are only inferences based on normal probabilities and can be misplaced by any material on record which may indicate to the contrary.

In the assessees case, the above benefit of arranging all the 4 benami bank accounts in a chronological order and working peak thereon has not been considered for the reasons discussed in the order.

In view of the above, the benefit of merging all the four bank accounts and working out peak on the consolidated basis has not been done to protect the interest of Revenue. In case, such consolidation of all the 4 benami bank accounts is done, then the overall peak credit is Rs. 5,59,514 as it falls on 27th Jan., 1998 in the account of M/s. Pramod Traders in UCO Bank, Mangalore.

Being aggrieved by the said order of the AO, appeal was filed by the assessee before the appellate authority in ITA 13/Mng/CIT(A) Mng/2000-01 on the file of the CIT(A), Mangalore and the appellate authority by order dt. 20th May, 2002 held that the order passed by the AO in respect of item Nos. 1 and 4 could not be sustained and insofar as other two accounts at sl. Nos. 2 and 3 opened in the name of M/s. Anil Kumar & Co. the peak credit for the relevant period 11th Dec, 1996 to 27th Jan., 1998 has to be taken into account as Rs. 4,27,389 and accordingly modified the order. The appellate authority also held that the amount disclosed amounting to Rs. 2 lakhs was in respect of the commission received in respect of M/s. Anil Kumar & Co. which has also taken into account while ascertaining the peak credit and therefore the amount is liable to be deleted. Being aggrieved by the said order of the appellate authority, the Revenue preferred the appeal. However, it was contended by the assessee by filing cross-objections that deduction of only Rs. 2,27,390 ought to have been made. The Tribunal, by the impugned order dismissed the appeal filed by the Revenue holding that so far as sl. Nos. 1 and 4 in the abovementioned chart are concerned, finding of the AO that they are benami accounts is not based upon the material found during search and it is based upon the material gathered during the enquiry after search and in respect of sl. Nos. 2 and 3 in the chart prepared by the AO, deletion for Rs. 2 lakhs was justified. Being aggrieved by the said order passed by the Tribunal, this appeal is filed by the Revenue which is admitted on 3rd Jan., 2007 for considering the substantial questions of law framed in the memorandum of appeal as follows:

(1) Whether, the appellate authorities were correct in holding that a sum of Rs. 14,02,011 cannot be treated as the income of the assessee by ignoring the search material, the admission made by the assessee and the accounts seized and consequently recorded a perverse finding?

(2) Whether the Tribunal was correct in directing deletion of peak credit despite the fact that no cogent or relevant reason assigned and based on mere conjectures and surmises?

We have heard the learned counsel appearing for the appellants and learned counsel appearing for the respondent.

The learned counsel appearing for the appellant submitted that the Tribunal was not justified in holding that two accounts held in benami names at sl. Nos. 1 and 4 in the statement prepared by the AO i.e., account Nos. nil Sangam Traders in Indian Bank and Pramod Traders in UCO Bank are held to be benami on the basis of the material available with the AO and therefore the said finding could not have been set aside by the appellate authority and further, the peak income of both the periods from 11th Dec, 1996 to 1st Dec, 1997 and from 24th Dec, 1997 to 27th Jan., 1998 ought to have been taken into account in addition to Rs. 2 lakhs of undisclosed income which has been disclosed according to the assessee and therefore, assessment of Rs. 16,29,390 was incorrect. He further submitted that the accounts at sl. Nos. 2 and 4 i.e., accounts in the names of Anil Kumar & Co. in the Indian Bank and UCO Bank for the period 11th Dec, 1996 to 1st Dec, 1997 and from 24th Dec, 1997 to 27th Jan., 1998 are separate accounts as per the original records which are available with him as the statement of accounts which shows that the account of Indian Bank was closed on 1st Dec, 1997 after withdrawing Rs. 10,000 which was the balance amount on the date of closure and the account was opened with the opening cash balance of Rs. 20,000. Therefore, separate peak credit was given for the two accounts and Rs. 2 lakhs which has been disclosed by the assessee ought to have been added to the income arrived at by the AO and the order passed by the appellate authority is liable to be set aside.

The learned counsel appearing for the respondent argued in support of the order passed by the Tribunal. He submitted that since the peak period ought to have been taken into by taking business profit as arrived at by the AO, the order passed by the Tribunal is justified.

We have given careful consideration to the contentions of learned counsel appearing for the parties and scrutinized the material on record.

The material on record would clearly show that the findings of the appellate authorities insofar as the accounts in the names of Sangam Traders in Indian Bank and Pramod Traders in UCO Bank are concerned, the material relied upon by the AO is not the material found during search and the material that is relied upon to hold that the said accounts are benami accounts held by the assessee is the material which is collected during investigation into the account maintained by Anil Kumar & Co. and therefore it is not based upon the material found during search and therefore, finding of the appellate authority that the said account cannot be said to be benami account held by the assessee is justified.

However, insofar as calculation of the amount of peak credit is concerned, we hold that the Tribunal was not justified in allowing the cross-objection as it is clear that apart from disclosing the amount of Rs. 2 lakhs as undisclosed credit, no material was produced regarding the accounts maintained and therefore, having regard to the material available on record, a sum of Rs. 4,27,389 arrived at by the appellate authority is justified as the said amount is for the period from 11th Dec, 1996 to 27th Jan., 1998 and the contention of learned counsel appearing for the Revenue that separate amount of peak credit has to be taken for the said two accounts cannot be accepted as the amount of peak credit is for the entire period from 11th Dec, 1996 to 2nd Jan., 1998 during which period both the accounts were operating in the name of Anil Kumar & Co. in account Nos. 549 and 440. The finding of the appellate authority that Rs. 2 lakhs which was undisclosed income according to the assessee, has to be taken into account as addition cannot be accepted. It is clear from the material on record that the said disclosure was made when the amount received from Anil Kumar & Co. and peak credit in respect of these two accounts have already been taken into account and therefore, the said deletion is also justified and does not call for interference in this appeal. Accordingly, the appeal is allowed in part. We answer the substantial question of law partly in favour of the appellant so far as it relates to the calculation of the amount of peak credit and in the negative in respect of addition of Rs. 2 lakhs voluntarily disclosed as additional income. The finding of the Tribunal that amount of peak credit shall be taken as Rs. 2,27,390 is set aside and the order of appellate authority that amount of peak credit shall be taken as Rs. 4,27,389 is restored.